Stocks rally into 2013 following fiscal cliff deal

Wednesday, January 2, 2013 - 10:41am

U.S. stocks surged into the New Year, after U.S. lawmakers reached a last minute deal to avert the fiscal cliff.

"What's been hanging over the markets for the last couple of months has finally been released," said Sean Kelly, a managing director at Knight Capital Group. "The rally today is 100% about the end of the fiscal cliff, and people are buying with both hands."

The Dow Jones Industrial Average rallied more than 230 points, or 1.8%, Wednesday. Gains were broad, with all 30 Dow stocks showing solid gains.

The S&P 500 also rose 1.8%, while the Nasdaq spiked 2.4%.

Financial shares led the gains, with Bank of America, JPMorgan Chase and Citigroup rising between 2% and 4%. Credit card companies Visa and MasterCard both hit all-time highs.

Tech stocks were also faring well, with Apple and Hewlett-Packard logging big increases.

Oil and gold prices also posted sharp gains, while the dollar was mixed, gaining against the yen but weakening against the euro and Bristish pound.

As investors shifted into riskier assets, safe havens, such as U.S. Treasuries sold off, with the yield on the 10-year note rising to 1.84% - a level not seen since mid-October.

Investors cheered the late night deal reached by the House that keeps the Bush tax cuts in place for most Americans, but raises the tax rate on individuals earning more than $400,000 and married couples earning over $450,000.

Lawmakers allowed the payroll tax cut to expire but extended federal emergency unemployment insurance benefits for another year.

"This isn't the grand bargain that people were hoping for, but having the deal done gives investors some certainty," said Giri Cherukuri, a portfolio manager with OakBrook Investments.

Investors ignored any downsides to the deal, including Congress's failure to tackle automatic spending cuts, which are now set to go into effect March 1. Additional -- and perhaps more intractable -- challenges remain. Congress must soon raise the debt ceiling, and figure out plans for the postponed spending cuts and the federal budget.

Major global markets were closed Tuesday for the New Year's holiday, but Wednesday's gains follow a New Year's Eve rally that helped all three stock indexes close the year with gains between 7% and 16%.

After news of the fiscal cliff deal broke in the early hours of the morning, stocks around the world rang in the new year with a rally.

European markets were broadly higher in late afternoon, posting gains of more than 2%. Asian markets ended higher. Australia's ASX All Ordinaries index added 1.3%. South Korea's KOSPI gained 1.7% and the Hang Seng in Hong Kong advanced 1.9%.

Japan's Nikkei and the Shanghai Composite remain closed in an extended New Year's holiday.

Aside from weighing the deal's impact, investors also got some good news on the economic front. The Institute for Supply Management's monthly manufacturing index showed activity rebounded in December. Investors shrugged off the Census Bureau's data on construction spending, which showed a decrease in of 0.3% in November. Analysts had predicted a 0.5% increase.

In company news, Avis Budget Group announced it will acquire Zipcar for $12.25 a share -- a 49% premium over its closing price on Monday. Zipcar shares rose nearly 50%.

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